Chapter 5: The Schumpeterian Model
5.2.3 Solving the model The model is solved by backward induction: in each period t;we –rst compute the equilibrium production and pro–t of a successful innovator; then, we move back one step and compute the optimal innovation intensity by the –rm selected to be an innovator. 5.2.3.1 Equilibrium production and pro–ts We start from step 4.
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